'Softwares':Things to know

Difference between the Box Packed Software and Software Downloaded directly from Internet
With Internet becoming a necessity, softwares have also become inevitable. Everybody of us use or have used some kind of software. A Software is a program designed to perform some specific task in a computer; for example: Operating system (Windows XP, Windows Vista), Document processing (MS Words), Database Management – DBMS – (MS Excel, MS Access, Oracle), Presentation (MS PowerPoint), Photo Editing (Adobe Photoshop), Document Reader (Adobe Acrobat Reader), Antivirus and Firewall and so on. It is a help to the hardware and without softwares, hardware cannot perform the essential functions.

Software usually comes in two forms:
1. Type 1 Software: Software available in a shop or a Mall or from a vendor or from a reseller, which comes in a “Box Packed Type” and usually such softwares are written/burned on a CD/DVD. But these can be stored in a Flash/Pen Drive or on a media which the purchaser obtains in a “Hard Copy Format” i.e. on a CD/DVD, Flash/Pen Drive or on Floppy/Hard Drive, etc.

2. Type 2 Software: Softwares available on the internet fall in this category. Such Softwares can be obtained by downloading it directly from the internet. The seller or the reseller in this case had uploaded that software on his FTP server, which can be located anywhere in the world. There can be a plethora of FTP Servers and the same software can be available on different “Mirror” FTP Servers at different places all over the world. Such software does not come in a “Hard Copy” format and the user downloads such software directly on to his computer Hard Drives.

We use a plenty of softwares without even realising the difference between the above stated two different types. We think that software which is available in the shop (in Hard Copy Format) is the same as the software which is available over the internet and can be downloaded directly from the internet. However, there is a great difference between the Type 1 and Type 2 Software in both commercial and legal sense.

The Type 1 Softwares are generally categorised as “Products” or “Goods” and the Type 2 Software are generally categorised as “Services” in Commercial and legal sense.

The Type 1 Software is traded as “Goods” and follows all the principles and laws relating to “Sale of Goods” in legal and commercial sense.

The Type 2 Software is traded as “Services” and follows the principles and laws relating to “Trade in Services” in legal and commercial sense. The “Services” also includes the Software “Updates” and “Upgrades”.

The “Updates” available on the internet are those softwares which come in “Patches” and are meant only to update the existing software which a user has already installed in his system. By updating, the version of the software does not change, but it becomes “up-to-date”. These upgrade the existing software to a higher version. The user has a choice of buying a new version of software directly from market or “upgrading” the existing software to the latest version of that software. The version of the software changes while upgrading. For Example: “Norton Antivirus 2006” is “updated” to achieve the latest definition of virus databases, the version is not changed, while “Norton Antivirus 2006” can be “upgraded” to achieve “Norton Antivirus 2008”. The user has a choice that he can buy a new and fresh “Norton Antivirus 2008” from market/internet or he shall “upgrade” it from existing “Norton Antivirus 2006” to achieve the “Norton Antivirus 2008”. Usually the Upgrade options are preferred by the users as the costs of the upgrades are always less than the fresh and new software.

The License Agreement (LA) Factor
Every genuine software comes with a License Agreement (LA). Though the software works in almost similar way, even then the Licence Agreement pertaining to Type 1 and LA pertaining to Type 2 is totally different. It can be observed by reading the License Agreement or the “Digital Contract” attached with both types of software. “Digital Contract” is the Contract of use of software which is in digital form. Almost all of us have seen such “Digital Contract” while installing the software, where a dialogue box opens and the user has to “read” it and “print” it and the software can only be installed if the user selects “I Agree” or “Accept”, but if the user selects “I Disagree” or “Reject”, the installation of the software fails. Such types of “Digital Contracts” or “Licence Agreement” are normally known as “End User Licence Agreement” (EULA).

The EULA pertaining to Type 1 software are related to softwares termed as “Goods” and the EULA pertaining to Type 2 are related to softwares termed as “Services”.
For Type 1 Software, the Digital Contract or EULA as it being a Standard Contract comes with a print outside the package or the box of the software. The reason for this is that, the EULA being in digital form, the user must read and know about it at the time he purchases it and not at the time he starts using it. After he buys the software and uses it for the first time, even if he disagrees with the EULA clause which is usually asked from the user when using it for the very first time, then he cannot return the purchased ‘Box’ Software, because he has already opened the Box or the packing material containing the software and only after agreeing to the License Agreement. Therefore, the EULA has to be printed on the outmost covering of the box software, for the purpose that the customer can read the EULA in printed form and can decide whether he agrees or disagrees with the EULA, thereby making his decision whether to purchase the software or not.

Whereas, for a Type 2 Software, the EULA is digitally available just before/near the “Download Link/Button”, from where the downloading can be started. Because of this, the customer who intends to purchase and download the software can read and understand the EULA, thereafter making his decision whether to purchase or not accordingly.

The Taxation and Other Factors
In India, Type 1 and Type 2 softwares are taxed in different ways. Type 1 is taxed as Goods and all taxes, direct or indirect, are levied on Type 1 as Goods i.e. customs, excise, octroi, VAT, etc. are all levied on Type 1 considering it as “Goods”. While Type 2 are taxed as Services and the “Service Tax” as and when applicable is levied.
Some other factors like the Warranty issues pertaining to the two classified softwares are also different. Type 1 softwares being “Goods”, such software carries a warranty with all the terms and condition of warranty. Type 2 softwares being “Services”, such softwares do not have any warranty because warranty is a virtue of “Goods” and not of “Services”.

The above difference is made clear under the UNCTRAL Model law relating to Digital Contract and e-commerce whereby the effort has been made to make e-commerce between countries and individuals easy and less complicated in terms of Taxation, Warranty and Licence Agreement.

Contributed By: Rameet Verma, LL.M., International Trade and Business Laws, NALSAR University of Law, Hyderabad.
Email: verma.ramit@gmail.com